Apparel is a competitive industry. Trends are constantly changing, and there are frequently new entrants. Rarely does a company make a long-lasting impact, but Lululemon has been an exception to a difficult rule.

We’re taking a look at what has allowed this company to grow from a specialty yoga clothing retailer into a massive international brand for both women and men’s fitness apparel.

What sets Lululemon apart?

Lululemon, or Lulu for short, was founded with a focus on high quality women’s yoga clothing. Beginning in 1998, this target audience positioned Lululemon as a worthy future competitor in the athletic apparel space. Existing giants in the area tended to focus on male athletic wear and emphasized function over appearance.

Lululemon appealed towards practicality and style with a different approach to advertising. Where other companies were only speaking to men, Lululemon initially spoke to women. Instead of sponsoring professional athletes, they featured day-to-day yogis. Lulu used strong, uplifting mantras, and their empowering manifesto was made clear.

In the early 2000s, Lulu’s efforts capitalized on a booming trend of health and wellness. As yoga grew in popularity across the US and Europe, athleisure became increasingly mainstream, with Lulu at the forefront. Just ten years later, the company completed an initial public offering. Its IPO raised over $320 million in 2007.

Vertical Integration

Lululemon makes use of vertical integration with involvement over every step of their production process, including the development and trademarking of their own fabrics. Many of their clothing designs are proprietary. From manufacturing raw materials to distribution, and importantly, owning their own retail stores, Lulu controls it all.

This means that Lulu products don’t come cheap. Many of Lululemon’s bestselling clothing items retail between $80-$150. Similar to other luxury brands, discounting is rare. Between high sticker prices and the lack of middlemen, the company generated a strong and profitable business.

In-Person Exclusive

Lululemon has done a pioneering job in creating a cult-like following by its strongest fans. The company approaches traditional retail from the perspective of a lifestyle brand. They have a relatively small number of physical locations, maintaining the exclusivity of its showroom style setup. You can’t find the full line of clothing at any other store.

In several locations, the company offers yoga classes, running clubs, and other athletic activities. This creates a sense of community that has a powerful draw for potential buyers. It also has the attractive side effect of getting their best customers into the store even more frequently.

Lululemon chooses yoga, spin and other instructors to be their brand ambassadors. They get free clothing, and the students seeing them wear Lululemon clothing tend to start doing the same. This kind of marketing has proven to be more authentic than sponsoring high profile athletes in the same way other brands do.

Employees have vast knowledge about the products and are charged with creating a community experience for customers. They’re also happy to work there. In 2018, Glassdoor named Lululemon in their Top 10 Best Places to Work.

Room to Stretch

After an early focus on US women’s yoga, the company has branched out. They’ve built out a men’s line, expanded internationally, and beefed up e-commerce sales, all of which have been key areas of recent growth. Lululemon believes these market segments continue to have considerable growth potential.

Men’s athleisure is still in its infancy. Although it is rapidly growing in popularity, the category has yet to go mainstream. Going forward, Lululemon’s customer loyalty and growing brand awareness among men positions them strongly to succeed.

Lululemon’s online presence used to be relatively small compared to peers. Over time, it has increased substantially and has further room to grow. Their international business also has tremendous potential to grow and has seen an increased focus from the company.

Lululemon’s community-centric approach leads to stickier business and positions them well for the long run.

Friends and Foes

The past few years have seen the emergence of a number of new community-driven companies in the fitness space, boosted by a recent trend toward in-home digital classes. Some may flourish, and others may not, but we believe Lululemon’s ability to evolve and improve will allow them to hold their own amongst the competition.

Investors shouldn’t get too caught up on the day-to-day proceedings of individual stocks in their portfolio. Over time however, changes to business fundamentals drive long-run returns. Properly identifying and understanding those changes is key to building successful portfolios.

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This material contains the opinions of Manning & Napier Advisors, LLC, which are subject to change based on evolving market and economic conditions. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. The reader should not assume that investments in the securities identified and discussed were or will be profitable.